This post was originally published on this site.
Federal Reserve reaction
Investors closely watch job data as a key economic indicator and a Fed monetary policy signal. The Fed manages interest rates through the federal funds target rate, which influences lending and consumer financing rates on mortgages, automobile loans and credit cards. The policy rate and investor expectations about its future path also strongly influence bond yields. In late 2024, as jobless claims and unemployment rose, the Fed cut its target rate by 1%, to a range of 4.25% to 4.50%. Renewed Fed concerns about a weaker job market led to cuts in September and October to a target rate of 3.75% to 4.00%.
Tom Hainlin, national investment strategist at U.S. Bank Asset Management Group, expects more rate cuts ahead. “Worries around elevated inflation have kept interest rates elevated,” says Hainlin. “However, recent data clearly indicates a softening labor market, increasing the odds of multiple rate cuts through 2026.”
What to expect
Looking ahead, evolving U.S. tariff policy adds economic uncertainty, although the U.S. economy has proven dynamic. Effective tariff rates (tariff revenue divided by the value of imported goods) approach 12%, up from 2-3% in recent years before April tariff announcements. Investors also monitor the effects of stricter immigration policies proposed by the Trump administration. “People subject to deportation, in many cases, have jobs, so if they leave, other workers will need to step into those jobs,” says Haworth. He highlights the construction industry, which relies heavily on foreign-born workers, as a sector that may face tighter labor conditions. Inflation also plays an important role in Federal Reserve decisions. Rising import cost pressures prompt businesses to pass higher import costs onto consumers to a greater degree. We continue to monitor consumer spending, labor markets, inflation and policy as we look ahead to 2026.
Talk with a wealth professional If you have questions about your financial situation or investment portfolio.